It’s all fun and games until somebody defaults.
Welcome to the end of the month, the end of the quarter and the possible end of $60 WTI. I think the teeming millions know me well enough by now to know that what’s coming next isn’t $20, but $80. That’s right kiddies, we’re about to take it up a notch. We’re about ready to turn it up because of the same reason that we turned it down in November; OPEC. That crazy band of brothers is about to go Taylor Swift on the world and tell everyone the way it should be. These boring times of oversupply and “oil gluts” is about to come to an end.
No, I don’t have an inside source or a leak into the numbers like we see every Tuesday before some irrelevant stats come out later in the afternoon. No, I’m going on what makes sense and what can easily happen if the chips start to fall today. Trust me, the world has one extra second today to add to the clock and we’ll need it.
Today is the day the Drachma drama hits its peak. There’s a lot at stake here and it can shake the foundation that supports the EU. If Greece does default, it’s time to put up or shut up for the EU. If the inevitable happens and the EU has to put Greece on double secret probation, it’s likely that Greece leaves the EU. If that happens then the EU has to reconsider a few other countries too. Actually the countries that are on the fringe or have risk of economic trouble should take note that there’s not a lot of options if things go south.
It’s the EU way or the highway and rather than wait for that time to come, it’s probably best to start taking steps out and away from seeing that debacle. Of course if countries in the EU are not so confident about the state of the EU, well outside investors have to start thinking about the same thing. That puts a country like China on shaky ground as they have taken a lot of time and a lot more money to invest in the EU the past few years as the United States has been in recovery mode. This is just about where OPEC gets it.
If we do see the EU start to stumble and the situation in China doesn’t get much better, we’re looking at OPEC’s last bastion of demand taking a hit. I’m not even going to speculate on the idea that Iran will be coming back to market, but that’s only going to add to my theory. With U.S. imports from OPEC down to 2.2MM b/d in the last EIA report, we’re a far cry from just five years ago when we we’re at 4.5MM b/d. U.S. production isn’t slowing at $60 and we’ve actually seen our production increase by 500K b/d since we started dropping in November.
That brings us to a whopping 9.6MM b/d of our own crude of which we’re running 16.5MM b/d. So we’re covering 60% of our demand and we’re also getting another 3.8MM b/d from the friendly confines of Canada, Mexico and Columbia. The point is that OPEC is not going to get any renaissance buying from the United States anytime soon. Their biggest consumers lie in Asia and the EU and if they’re going to be hitting the skids, so will all of that demand they are relying on. That means that as this all plays out, there’s going to be a definite need on their part to shake things up.
We already know that countries like Nigeria and Venezuela are struggling as it is, but to see the loss of more barrels in an already tight market, well it just ain’t going to happen. Ring the bell, we’re about to see someone tap out and get out of the octagon.